IDEAS home Printed from https://ideas.repec.org/p/cdl/econwp/qt4jr5p6p0.html
   My bibliography  Save this paper

Superstar CEOs

Author

Listed:
  • Malmendier, Ulrike
  • Tate, Geoffrey

Abstract

We analyze the impact of winning high-profile tournaments on the subsequent behavior of the tournament winner in the context of chief executive officers of U.S. corporations. We find that the firms of CEOs who achieve ”superstar” status via prestigious nationwide awards from the business press subsequently underperform beyond mean reversion. The underperformance of the company stock holds both relative to the overall market and relative to a sample of ”hypothetical award winners” with matching firm and CEO characteristics. We also find underperformance in accounting returns. At the same time, award-winning CEOs extract significantly higher compensation following the award, both in absolute amounts and relative to other top executives in their firm. They also spend significantly more time and effort on public and private activities outside their company such as assuming board seats or writing books. Our results suggest that media-induced superstar culture leads to behavioral distortions. The distortions are strongest in firms with weak corporate governance, suggesting that firms could prevent the negative consequences.

Suggested Citation

  • Malmendier, Ulrike & Tate, Geoffrey, 2008. "Superstar CEOs," Department of Economics, Working Paper Series qt4jr5p6p0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt4jr5p6p0
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/4jr5p6p0.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alexander Dyck & Natalya Volchkova & Luigi Zingales, 2008. "The Corporate Governance Role of the Media: Evidence from Russia," Journal of Finance, American Finance Association, vol. 63(3), pages 1093-1135, June.
    2. Samuelson, Paul A., 2002. "Is There Life After Nobel Coronation?," Nobel Prize in Economics documents 1970-3, Nobel Prize Committee.
    3. Rajan, Raghuram G. & Wulf, Julie, 2006. "Are perks purely managerial excess?," Journal of Financial Economics, Elsevier, vol. 79(1), pages 1-33, January.
    4. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
    5. Degeorge, Francois & Patel, Jayendu & Zeckhauser, Richard, 1999. "Earnings Management to Exceed Thresholds," The Journal of Business, University of Chicago Press, vol. 72(1), pages 1-33, January.
    6. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    7. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    8. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    9. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    10. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1169-1208.
    11. Hirshleifer, David & Kewei Hou & Teoh, Siew Hong & Yinglei Zhang, 2004. "Do investors overvalue firms with bloated balance sheets?," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 297-331, December.
    12. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    13. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    14. Zingales, Luigi & Dyck, Alexander, 2002. "The Corporate Governance Role of the Media," CEPR Discussion Papers 3630, C.E.P.R. Discussion Papers.
    15. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    16. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
    17. Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar, 1998. "Alternative factor specifications, security characteristics, and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 49(3), pages 345-373, September.
    18. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    19. Yermack, David, 2006. "Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns," Journal of Financial Economics, Elsevier, vol. 80(1), pages 211-242, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Neckermann, Susanne & Cueni, Reto & Frey, Bruno S., 2014. "Awards at work," Labour Economics, Elsevier, vol. 31(C), pages 205-217.
    2. Bo Cowgill & Eric Zitzewitz, 2015. "Corporate Prediction Markets: Evidence from Google, Ford, and Firm X," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1309-1341.
    3. Susanne Neckermann & Reto Cueni & Bruno S. Frey, 2009. "What is an Award Worth? An Econometric Assessment of the Impact of Awards on Employee Performance," CESifo Working Paper Series 2657, CESifo.
    4. Neckermann, Susanne & Frey, Bruno S., 2013. "And the winner is…? The motivating power of employee awards," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 46(C), pages 66-77.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ulrike Malmendier & Geoffrey Tate, 2009. "Superstar CEOs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1593-1638.
    2. Bang Dang Nguyen, 2015. "Is More News Good News? Media Coverage of CEOs, Firm Value, and Rent Extraction," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-38, December.
    3. Ting, Hsiu-I & Huang, Po-Kai, 2018. "CEOs’ power and perks: Evidence from Chinese banks," Journal of Economics and Business, Elsevier, vol. 97(C), pages 19-27.
    4. Loureiro, Gilberto & Makhija, Anil K. & Zhang, Dan, 2011. "Why Do Some CEOs Work for a One-Dollary Salary?," Working Paper Series 2011-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    5. Stacey Beaumont & Raluca Ratiu & David Reeb & Glenn Boyle & Philip Brown & Alexander Szimayer & Raymond Silva Rosa & David Hillier & Patrick McColgan & Athanasios Tsekeris & Bryan Howieson & Zoltan Ma, 2016. "Comments on Shan and Walter: ‘Towards a Set of Design Principles for Executive Compensation Contracts’," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 685-771, December.
    6. Alev Yildirim & Linda Allen, 2021. "Measuring systematic risk from managerial organization capital," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 2049-2072, October.
    7. Fahlenbrach, Rüdiger, 2009. "Founder-CEOs, Investment Decisions, and Stock Market Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(2), pages 439-466, April.
    8. repec:hum:wpaper:sfb649dp2007-055 is not listed on IDEAS
    9. von Lilienfeld-Toal, Ulf & Ruenzi, Stefan, 2006. "Why managers hold shares of their firm: An empirical analysis," CFR Working Papers 06-11, University of Cologne, Centre for Financial Research (CFR).
    10. Cook, Douglas O. & Chowdhury, Jaideep & Zhang, Weiwei, 2023. "Director optimism and CEO equity compensation," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 143-162.
    11. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    12. Chongwoo Choe & Gloria Tian & Xiangkang Yin, 2008. "Managerial Power, Stock-Based Compensation, And Firm Performance: Theory And Evidence," Monash Economics Working Papers 21/08, Monash University, Department of Economics.
    13. Kewei Hou & Haitao Mo & Chen Xue & Lu Zhang, 2019. "Which Factors?," Review of Finance, European Finance Association, vol. 23(1), pages 1-35.
    14. Frye, Melissa B. & Pham, Duong T., 2018. "CEO gender and corporate board structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 110-124.
    15. Hoi, Chun Keung(Stan) & Wu, Qiang & Zhang, Hao, 2019. "Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation," Journal of Financial Economics, Elsevier, vol. 133(2), pages 498-519.
    16. Loureiro, Gilberto & Makhija, Anil K. & Zhang, Dan, 2020. "One dollar CEOs," Journal of Business Research, Elsevier, vol. 109(C), pages 425-439.
    17. Neyland, Jordan, 2020. "Love or money: The effect of CEO divorce on firm risk and compensation," Journal of Corporate Finance, Elsevier, vol. 60(C).
    18. Gunasekarage, Abeyratna & Luong, Hoa & Truong, Thanh Tan, 2020. "Growth and market share matrix, CEO power, and firm performance," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    19. Kewei Hou & Chen Xue & Lu Zhang, 2017. "Replicating Anomalies," NBER Working Papers 23394, National Bureau of Economic Research, Inc.
    20. Ferhat Akbas & Chao Jiang & Paul D. Koch, 2020. "Insider Investment Horizon," Journal of Finance, American Finance Association, vol. 75(3), pages 1579-1627, June.
    21. Goergen, Marc & Limbach, Peter & Scholz-Daneshgari, Meik, 2020. "Firms' rationales for CEO duality: Evidence from a mandatory disclosure regulation," Journal of Corporate Finance, Elsevier, vol. 65(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:econwp:qt4jr5p6p0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/ibbrkus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.